If a good is normal and its price increases,

Question

BlackTom AI · Accepted Answer

The prompt asks us to consider what happens when a good is normal and its price increases, and there are no answer options provided to compare.
First, note the typical decomposition of the price-change effect into two components: the substitution effect and the income effect.
- Substitution effect: when the price of a good rises, the good becomes relatively more expensive compared to its substitutes, so consumers tend to substitute away from the good toward relatively cheaper goods. This effect always reduces quantity demanded of the good whose price has risen, regardless of whether the good is normal or inferior.
- Income effect: a price increase reduces consumers' real purchasing power. For a normal good, a decrease in real income lowers quantity demanded; for an inferior good, the income effect could increase quantity demanded, but that is not the case here since the good is specified as normal.
With a normal good, both effects work in the same direction when price rises: the substitution effect lowers consumption, and the income effect also lowers consumption because the consumer feels poorer and buys less of the normal good.
Therefore, the statement that 'the income effect will reduce consumption of the good, and the substitution effect will also reduce consumption of the good' is consistent with standard microeconomic theory for a normal good experiencing a price increase.
However, since no answer options were provided in the prompt, there is nothing to evaluate against or to mark as correct among choices. The analysis above explains why, in general, both effects would reduce quantity demanded in this scenario.

If a good is normal and its price increases,单项选择题

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If a good is normal and its price increases,单项选择题

类似问题

Sarah usually buys 5 cups of coffee and 2 muffins every day. The price of coffee falls significantly. Explain how the substitution effect and the income effect influence Sarah’s decision to buy more coffee.

For Sarah, meals at McDonald’s are an inferior good. When the price of meals at McDonald’s increases, Sarah buys less McDonald’s meals. This means that:

Which of the following occurs simultaneously with an income effect?

Rose is allocating her budget between two goods—Apples and Bananas; both are normal goods. If the price of apples increases from $1 per pound to $2 per pound, then the income effect causes her to buy ___of apples and the substitution effect causes her to buy___ of apples.

The effect of a change in relative price on consumer choice can be divided into:

Which of the following occurs simultaneously with an income effect?

Assume that a consumer has well-behaved preferences. Following a price increase for good 1, we observe that a consumer increases the quantity demanded for good 1. From this, we know that

Consider a consumer buying perfect complements. If there is a decrease in the price of good 1, the total change in consumption of good 1 is due to

更多留学生实用工具

希望你的学习变得更简单

Rose is allocating her budget between two goods—Apples and Bananas; both are normal goods. If the price of apples increases from $1 per pound to $2 per pound, then the income effect causes her to buy _of apples and the substitution effect causes her to buy_ of apples.